We all know solar power is good for both our environment and our pocket. However, do you know about the solar tax incentives that the federal government provides? Yes! Some incentives can help you cover around 30% of the total costs that you will bear in the process.
In this article, we will be insightfully talking in detail about solar tax incentives. By the end of the article, you will get insights about the federal solar tax credit, the solar tax credit in 2024, and the process of claiming your tax credit. So, let us start!
What Do We Understand by Solar Tax Credit?
Solar tax credit is an investment tax credit (ITC). When the government is interested in bringing boosted growth in a sector, it provides ITC. Therefore, as per the Inflation Reduction Act signed in 2022, solar tax credits have been extended through 2034.
The following is the breakdown of the solar tax incentives:
- Panels installed in 2020 and 2021 are eligible for a 26% tax credit
- In August 2022, Congress raised ITC to 30% for the installation
- Before December 31, 2019, we were also eligible for a 30% tax credit.
- It will reduce to 26% for systems installed in 2033 and to 22% for systems installed in 2034.
- The solar tax incentives will expire starting in 2035 unless Congress renews it.
The official name of this solar tax credit is the residential clean energy tax credit. It covers equipment and installation costs. You should keep in consideration that this tax credit can help you save some money, but it will not exceed the total amount.
Expenses Covered in Solar Tax Incentives
The following are the expenses covered in the tax credit:
- Solar panels or PV cells (not the fan, but the attic fan).
- The cost incurred for onsite preparation by contractual labour, assembly, and installation costs. It includes inspection costs, developer fees, and permitting fees.
- Devices that store energy with a capacity rating of 3 kilowatt-hours (kWh) or greater.
- Sales taxes on specific expenses
- Wiring, inverters, and mounting equipment.
Projects Covered and How to Qualify for Solar Tax Incentives
Various projects come under the residential clean energy credit scheme. These include solar water heaters, solar electric, fuel cells, biomass fuel, small wind energy, and geothermal heat pumps.
There are some guidelines that one needs to keep in consideration to qualify for solar tax incentives:
- You should have installed the solar panel at your home in the U.S. only. As per the IRS, you can claim these incentives for properties, including a house, mobile home, houseboat, manufactured home, or even a condominium.
- The project must have been placed in service in 2017 or later. Any project activated before that period is not eligible for these claims.
- These guidelines can seem complicated at times. However, contacting government platforms or someone like SunBeam Innovations can help you to make effective decisions.
How Do You Claim Solar Tax Incentives In 2024?
The process to claim your solar tax incentive can be easily divided into a few simple steps. You will carry this claiming process when you file your yearly federal tax return. If you coordinate with your accountant, keep in consideration that you let them know about the installation of solar panels at your place beforehand.
Here are three simple steps by which you can claim your solar tax incentive in 2024:
Considering your Eligibility
One thing that you need to keep in mind before applying for this is to find out whether you even qualify for the same or not. You can refer to the sections above to make your decision. Also, if you have an accountant, they can make things clear for you. Note that it is essential for you to own your solar energy systems to qualify for the federal solar tax incentives. There is no tax incentive in the cases when you lease the system or do not have the tax bill.
Completion of IRS Form 5695
If you are filling out your taxes yourself, you can refer to the government guidelines for filling out IRS Form 5695. If that is not the case, you can always contact your accountant. In that case, make sure that you have the supporting documents highlighting your solar installation when you visit the accountant.
Add to Schedule 3 and Form 1040
After the completion of your IRS Form 5695, the next thing that you are required to do is to use the information and fill in Schedule 3. Using Schedule 3, you can claim non-refundable as well as refundable credits. After this, fill out Form 1040, which is crucial for you to use in your tax return.
Therefore, by following these three simple steps, you can claim your solar tax incentive.
Understanding and taking advantage of solar tax incentives can significantly benefit both the environment and your financial bottom line. The federal solar tax credit, extended through 2034, offers substantial savings on installation costs, covering up to 30% of expenses incurred. By harnessing renewable energy sources such as solar panels, homeowners can not only reduce their carbon footprint but also enjoy long-term savings on energy bills.
Navigating the process of claiming these incentives may seem daunting at first, but with a clear understanding of eligibility criteria and proper documentation, it becomes a manageable task. Whether you are a DIY tax filer or rely on professional assistance, following the outlined steps ensures a smooth and successful claim process.
Embracing solar tax incentives presents a compelling opportunity to foster environmental sustainability and financial savings simultaneously. By leveraging the expertise of entities like SunBeam Innovations, homeowners can navigate the complexities of solar panel installation with confidence and ease.
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